A €1bn four year CFF covered bond achieved the tightest level for a euro benchmark in nearly four weeks today (Monday) and attracted over €2.2bn of orders, with some syndicate bankers saying it could signal a recovery in spreads, although others were more cautious.

After announcing the mandate this morning, Compagnie de Financement Foncier (CFF) leads Citi, Commerzbank, LBBW, Natixis, Rabobank, Swedbank and UBS went out with guidance of the mid-swaps plus 38bp area for a four year euro benchmark-sized transaction. After around an hour and 45 minutes, the size was set at €1bn on the back of over €1.5bn orders, and after around two hours and 45 minutes guidance was revised to 36bp+/-1bp, will price in range, on the back of over €2.2bn of demand, excluding joint lead manager interest. The spread was ultimately set at 35bp on the back of over €2.2bn orders good at re-offer, with over 80 accounts participating.

The 3bp move from guidance to pricing is the biggest on any benchmark in a month, as well as 35bp being the tightest re-offer level since a €1.25bn five year for Bank of Nova Scotia on 11 March. A syndicate banker at one of the leads said this indicates a further improvement in tone after Crédit Agricole and Crédit Mutuel evinced stronger demand for covered bonds amid more stable conditions last week.

“It’s showing for the first time that maybe we are taking a few steps tighter,” he said, “although it’s only small steps, as the latest French deals that went for 40bp are a few basis points tighter in secondary.”

Crédit Agricole’s €2bn long four year deal on Wednesday – the first since PEPP buying began – and Crédit Mutuel’s €1.75bn five year on Thursday were both priced at 40bp over mid-swaps, the former having set its re-offer level from the outset, and the latter having gone out with 40bp area guidance.

The move towards tighter spreads could reflect the latest coronavirus statistics in Europe offering glimmers of hope, the lead banker suggested, with Italy, Spain and France having all reported slowing infection rates in the past week.

“There’s a little more positive sentiment, but you cannot be sure since in a week’s time it could all blow up,” he said.

Syndicate bankers away from the leads welcomed the new issue’s execution. One noted that European equity markets were in general up 3%-5% today, and that some European governments are beginning to contemplate loosening lockdown measures.

“This does help from a psychological view, at least,” he said, “so maybe that’s where this deal comes from.”

However, he said that even if the re-offer spread showed definite signs of encouragement, CFF’s execution was “probably the slowest” of the recent French prints.

The lead banker acknowledged that bookbuilding was relatively slow, but said this was likely a function of it being launched relatively early for a Monday morning, at around 7:00 CET.

“Funnily enough, we didn’t get the feeling it was slow,” he added, “because there was always action in the book, and there were over 80 accounts in the end.”

Another syndicate banker away from the lead suggested the smaller issue size of CFF’s trade versus its compatriots was probably a factor in the deal’s pricing.

He added that even though the deal’s tighter re-offer spread is noteworthy, it is unlikely to spur many other issuers towards the primary market.

“Even with a plus €2bn book,” he said, “a big proportion of that is from the central bank, so it doesn’t feel like the rest of central Europe is going to jump in to do covered bond deals just because this priced a few basis points tighter.”